Insolvency
Shining a spotlight on Australia’s bankruptcy laws By Emma Mos*
COVID-19 has led to some of the most significant changes to insolvency laws that Australia has ever seen, and it’s not just corporate insolvency legislation that the federal government has made changes to – protection measures have also been applied to personal insolvency. In this article, we look at the temporary – and permanent – protection measures that have been applied, the discussion paper around further changes to the Bankruptcy Act, and we take a deeper look at the proposed one-year bankruptcy period. In March 2020, the federal government introduced a number of temporary measures in response to the COVID-19 pandemic and the associated economic impacts. These temporary measures included: 1. The debt threshold for creditors to apply for a Bankruptcy Notice against a debtor increased from $5000 to $20,000. 2. The timeframe for a debtor to respond to a Bankruptcy Notice before a creditor could commence bankruptcy proceedings increased from 21 days to up to six months. 3. The temporary protection period available for debtors to prevent recovery action by unsecured creditors increased from 21 days to six months. The temporary measures were initially scheduled to cease on September
24, 2020 but were extended until December 31, 2020. And on January 1 this year, the bankruptcy threshold permanently changed to $10,000, doubling the pre-pandemic threshold of $5,000, while the amount of time to respond to a Bankruptcy Notice and the period of temporary debt protection both reverted back to 21 days. However, the ending of the temporary measures was not the end of the matter. In January this year, the federal Attorney-General’s Department released a discussion paper entitled The Bankruptcy system and the impacts of coronavirus. The aim was to seek stakeholder submissions on possible changes to the personal insolvency system – The Bankruptcy Act 1966 – to inform the government’s ongoing response to address the impacts of the pandemic. There are four key areas of the Bankruptcy Act under review: 1. The default period of bankruptcy being reduced from three to one year. 2. Debt agreements (regulated under Part IX of the Bankruptcy Act which offer an alternative to bankruptcy to debtors, provided certain threshold requirements are met). 3. Personal insolvency agreements. Also known as a Part X, a personal insolvency agreement (PIA) is a legally binding agreement ➤
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